Today, the Globe and Mail carried curious story on the front page above the fold, which is the most prized position in any daily newspaper.
The headline stated: "Big Six banks urge Ottawa to tighten mortgage rules".
An unnamed source quoted in the article suggested that the bankers would be happy with upping the minimum down payment from five percent to 10 percent, and shortening the maximum amortization period from 35 years to 30 years.
The piece made it appear that a bunch of benevolent bankers were troubled by the prospect of a housing bubble, and wanted to make it more difficult for some Canadians to borrow money to buy a home.
Why would they do that if they're profiting from all this lending?
Perhaps an article in the Georgia Straight last week might provide a clue. New Westminster chartered accountant Elbert Paul noted that the Office of the Superintendent of Financial Institutions is requiring federally regulated entities, such as banks, to conform to international financial reporting standards.
In the past, securitized Canada Mortgage and Housing Corporation mortgages were not required to be reported on the balance sheets of the banks. That changed on January 1.
The banks don't make as much money on these products as on other financial instruments, according to Paul, who questions the wisdom of the OSFI's new rule.
“Many financial institutions will have no choice but to exit CMHC securitization entirely as revenues from this low risk insured product will be significantly less favourable than from other products,” Paul wrote in a December 10 letter to Finance Minister Jim Flaherty. “This is because CMHC securitization product will be weighted the same way as any other asset.”
In other words, the advantage that CMHC securitization has provided in the past—in that they were never included in the calculation—will now be taken away.
Perhaps the Big Six banks want the feds to legislate shorter amortization periods and higher minimum down payments so they don't have to deal with pesky CMHC-insured mortgages, which don't generate as much revenue as other lending. And to hell with first-time buyers who might want to enter the home-ownership market.
An added bonus for the banks? It would make it even harder for credit unions, which rely heavily on mortgages, to compete with them.
It's too bad Parliament isn't sitting so that Opposition MPs can ask questions about this.